Monday, December 10, 2012

The article led with the
news that: “The United States will overtake Saudi
Arabia as the world’s leading oil producer
by about 2017 and will become a net oil exporter by 2030, the International
Energy Agency said Monday.”

Such was the summary of the just released International
Energy Agency (IEA) World Energy Outlook 2012 report, which among other
things anticipated the political and economic dream of US energy independence.

The report is a massive and expensive document
that is not likely to make the best-seller list. Its import, however, is stunning: in more ways than one.

For business owners, politicians and the
average consumer, this is fabulous news.

For the environmentally sensitive there may be a sinking feeling. All should read the fine print.

What
makes US energy independence possible and what does it mean to consumers? Bottom line is that US fossil fuel resource development
is driven by the rising cost of oil and gas.
There is a lot of oil and gas still left in the ground that has not previously
been economically feasible to exploit.
The cost of a barrel of oil has more than quadrupled in the last decade (and
peaked at half again that level) and this makes it now profitable to exploit “nonconventional” energy products such as shale
oil and gas, heavy oils, and Canadian tar sands.

Who says
so? The International Energy Agency
(IEA) is an intergovernmental organization founded in 1974 in response to the ‘70s
energy crisis. The IEA was formed by the
Organisation for Economic Co-operation and Development (OECD), which was formed
in 1948, and reorganized in 1961 to include 34 of the world’s most developed countries,
for the purpose of stimulating economic progress and world trade. The IEA supports that mission by providing
economic research related to world energy and offering policy advice to its
members.

In this
article I will review the proposal for US oil independence and the related
issues of climate change, environmental challenges and renewable energy mandates
implied by the IEA. The article will
conclude with a proposal for addressing our energy future at the local level.

American Oil

Up until
the 1970s, the US was the world’s leading oil producer. Then, as oil industry geoscientist M. King
Hubbert predicted, we hit the peak and went into decline. We then made big oil finds in Alaska and
built a giant pipeline (finished in 1977) to bring it home. Alaskan oil peaked in
1988 and went into decline, barely more than a decade after being fully
developed.

US oil
production peaked at 9.6 million barrels of oil per day by 1970 and declined to
4.95 million in 2008. Contrary to
conservative political opinion, US oil production rose steadily during President
Obama’s first term to 5.7 million barrels a day, the first sustained period of
growing domestic oil production since the Alaskan oil decline. The US Department of Energy projects that
daily output could reach seven million barrels per day by 2020. This is still well short of Saudi Arabia’s
nearly 11 million barrels per day, and that is the first flag on the play of
the IEA report. There are still a lot of
questions that need to be fully examined before we pop the cork.

Let’s
start with US oil production and consumption.
The US consumed nearly 19 million barrels of petroleum per day in 2011 (nearly
7 billion barrels per year out of 30 plus billion consumed world-wide). This was down slightly from 2010 consumption
due largely to a sluggish economy and rising gasoline and heating oil prices.

If we are
producing only 6 million barrels of oil per day domestically, that leaves 13
million barrels of imported oil to fill the gap. Those imports include somewhat more than 4
million barrels from OPEC countries (about half of which comes out of the
Persian Gulf), one million barrels per day from Venezuela, more than a million
barrels per day comes from Mexico, and more than three million from Canada. The remainder comes from a long list of other
countries.

Thirteen million barrels-equivalent of imported oil a day is a big
stretch. Let’s add another footnote from
the IEA report: Half of our energy
independence will come not from production but from conservation, efficiency
and renewable energy. That condition
requires a massive investment in both political policy (e.g. automobile mileage
standards) and renewable energy development.

Sources of New American
Energy

A major
source of new energy for the US is shale oil and gas. Shale is a hard, impermeable stone in which
oil and gas are tightly bound. It is
released by a process called hydrofracking (or fracking, for short). Petroleum-bearing shale is often thousands of
feet underground and it takes a lot of drilling to get to it. Oil and gas shale layers are only a few
hundred feet thick so a technology was developed to turn the drill horizontal
to surface for a distance of a mile or more.
Once the well is drilled, the hard shale is broken up by injecting
high-pressure water, to which a number of chemicals are mixed, and sand to keep
the resulting cracks open. This
technology has been around for a while but the cost was prohibitive until the
2008 oil cost spike dramatically changed the market. Oil can also be recovered from shale gas plays that
contain “wet” gas--wells that produce significant amounts of petroleum and
liquefiable natural gases such as propane and butane that come up with the gas.

The largest
shale oil play is the Bakken deposit in North Dakota, Montana and Canada. Estimates of recoverable reserves run from
four to as much as 18 billion barrels.
The amount that can be recovered depends on the price of oil on the
market and steady advances in recovery technology (which is expensive).

At the
middle range of eleven billion barrels of recoverable oil in this formation,
how long would it last? Given that we
consume seven billion barrels of oil per year, seven into 11 translates into mere
months of additional oil future. In
reality it will take ten to twenty years to develop this field and production
will, according to some estimates, peak at between a half-million and a million
barrels per day – possibly five percent of our annual demand. How long that peak can be maintained is
guesswork.

The Bakken is one of several tight-oil fields in the
US. Care should be taken to distinguish
tight-oil in shale from “oil shale” which is a waxy substance that is far from
feasibly recoverable at this time.
Tight-oil is actually high-quality light oil and can be readily
processed by existing refineries. The US
Energy Information Administration estimates that the eight major tight-oil
formations could produce 1.3 million barrels per day by 2035, or ten percent of
our oil requirement assuming no increase in demand.

Reserves
will also be developed by enhanced technologies in existing fields and offshore
development along the US and Alaskan coast.
We must remember, however, as in the case of all oil developments, at
current levels of technical and economic feasibility, we will reach a peak
level of production. Each new level of
recovery technology represents both higher cost at the pump and a reduced
return on energy investment. It takes
increasingly more energy to develop each barrel equivalent of fuel.

Oil and gas are nonrenewable resources and a point of
diminishing returns will be reached as shown on this IEA chart. We must keep in mind that even the experts disagree
about how much oil there is and what can be recovered so a lot of the estimates
are in fact guesswork. IEA prediction of
the petroleum future is based largely on estimates of “undeveloped” and “undiscovered”
reserves. These are potential fields in
which the amount of recoverable petroleum is far from certain. In short, we are playing a very risky game.

World energy
markets:

Not only
is the US ramping up fossil fuel production, so too is much of the rest of the
world. We have a large share of (but, by
no means, the only) nonconventional oil and gas reserves. Much of the expected increased production
will result from new technologies in old fields – reserves that were heretofore
technically and economically unfeasible to produce. The IEA, for example,
points out that Iraq, emerging from decades of political and economic
instability, is dramatically increasing oil production. Most of that will go to fill the growing demands
of Asia, particularly China and India.
World oil demand is expected to increase by twenty to thirty percent
over the next twenty years.

This rise
in demand has two implications: Energy
cost and global warming. To whatever
extent the US becomes energy independent, the price we pay for petroleum
products will not be independent of the world market. We will pay world market prices. Development of nonconventional fuels, and
alternative energy resources for that matter, depends on the global price of
oil. Only now, at the current rate of
just under $100 per barrel, can these resources be exploited. The IEA expects the cost of oil to rise over
the next decade to at least the equivalent (2012 dollars) of $125 per
barrel. That could mean increases in the
cost of gasoline, diesel fuel and heating oil to $6 or more per gallon. It should be noted, however, that previous
estimates of future energy cost have been woefully short of what they actually became. The cost of energy will also increase as the
economy recovers and demand rises.

Environmental Consequences

The second issue is the effect of increased emission
of greenhouse gases. The IEA warns that
unless the level of greenhouse gas emission stays within current levels, the
door on stopping global warming at a 2 degrees Celsius (3.6 degree Fahrenheit) temperature
increase will close within five years.
Greenhouse gas emissions, however, continue to rise despite economic
softness. They rose dramatically during
the last decade and hit a record in 2011.
The World Bank, less optimistic than the IEA, sees a minimum 3 degrees C.
and others 4
degrees C. (7.2 degrees F.) as a more likely scenario. The amount of climate
change we have seen with a less than one-degree C. change gives many a disquieting
feeling.

Burning more fossil fuels will produce more carbon dioxide, but carbon
dioxide is only part of the greenhouse gas picture. Natural gas is touted as relatively green
because it produces half the CO2 as oil, but natural gas is methane
and methane is an even more powerful greenhouse gas than CO2. Leakage of methane into the atmosphere from
wells, distribution and as a result of Artic warming, that will release methane
from permafrost and deep water, will become a significant factor in climate
change.

Water is
another serious problem. Fracking
requires millions of gallons of water per well and wells may be repeatedly
fracked as production falls off. Many
shale oil sites have limited surface water and must draw on already depleted
aquifers. Fracking also produces toxic
wastewater that must be treated and disposed of. Groundwater contamination by chemicals and
methane is already hotly debated.

Pipelines
are another issue; they frequently break.

Climate
denial is a well-funded industry in the US, and while it has an emotional
appeal to a very large part of the US electorate, it flies in the face of
fact. It is mostly ideology and even
dogmatic and, when it draws on facts, cites the exceptions rather than the rule. Thousands of climate scientist are in
essential agreement and a large majority of Americans currently believe in climate
change, especially in the wake of Sandy and other extreme storms and weather-related
events. The US Department of Defense
believes in climate change and acknowledges the need to plan to meet consequential
threats. The World Bank believes in
it. Lloyds of London, a world-class
insurance house, has basically said that corporations that do not adapt to
climate change are very risky investments.
The insurance industry is reeling under the impact of storm damage. It is increasingly becoming inarguable that humans
are the cause of global warming. The
fact is that the world is getting warmer and it is happening faster than
expected.

The IEA
took pains to address climate change.
Unless significant international policy initiatives are put into place by
2017, they have warned, a 450 ppm level of CO2 will be "locked
in." CO2 levels reached
391 ppm in October 2012 and are increasing at a rate of at least 2 ppm per
year. At 450 ppm, which we will hit by
or before 2040, world temperature will increase to 2 degrees Celsius with a
level of consequence climate behavior scientists see as significant, especially
for poorer economies around the world. The
IEA seems pessimistic that this curb can be put in place.

Between
November26th and Dec 8th, 2012, the annual UN Climate Change Conference,
held in Qatar, ended predictably in deadlock.
The standing objective of cutting OECD greenhouse gas emissions by 5%
from 1990 levels was reiterated over a background chant of the mantra of
Growth. The poor nations are demanding
100 billion USD equivalent, per year to mitigate climate impact, a plea that
was punctuated by a tropical superstorm bearing down on the Philippines.

Mitigation

The IEA advises
the same solutions environmentalists do for mitigating the effects of
greenhouse gas emissions: Conservation
and renewable energy. In order to
achieve its goal of energy independence the US must become more efficient and
develop alternative energy resources.
The US currently uses nearly twice the energy per capita as many
developed nations such as Germany, the UK and Japan. We use a quarter of the world’s oil. The US, however, does not have a comprehensive
national plan for developing renewable energy resources. Indeed, renewable energy incentives are being
reduced. Our national priority is oil,
gas and biofuels (a mere trickle of total fuel demand). The objective of doubling automobile gas mileage
will help. Wind and solar farms will continue
to be built, but at the current level we will add perhaps one or two percent
per year to our energy resources from renewable production. As mentioned above, half of US oil dependence
must come not from production but from conservation. We must create a national energy mandate on
the level of a Manhattan Project if we are to achieve energy independence.

The irony
of the resistance to conservation and renewable energy is that they are good
business. From Paul Hawken and Amory
Lovins, starting 20 years ago, to Van Jones and others today, the list of
renewable energy visions is remarkable.
We have workable business models for creating a new energy industry. Granted, it takes public incentives and
investments, but so does the fossil fuel industry. And, yes, it could involve carbon taxes, but
those revenues could be invested into the enterprises that produce a lot of
jobs. Ditto fees assessed to offset
environmental consequences of fossil fuels.
But the job of creating a new energy economy will depend on businesses
and that means both a more resilient economy and jobs.

American
prosperity has been built on not one but two energy economies: Steam then oil. Renewable energy could rebuild it once
again. Amory Lovin’s 2011 Reinventing Fire (see review) outlines
a business-driven model for achieving energy dependence by 2050 that is not
only sustainable but would greatly strengthen our economy.

Summary

The IEA
fossil fuel future is technically and economically feasible and politically
desirable. It is certainly good news to
corporations that reap huge profits from fossil fuels. It is good news to the consumer who really
hopes that progress will go on forever, that the lights will stay on, the house
stays warm, and two cars are always gassed up and ready in the garage.

At least
half of the oil and gas reserves are still in the ground but the easy takings
are mostly gone. As the cost of energy increases
non-conventional energy reserves become marketable. Pump prices will go up. But there is also a growing hidden cost, one that
will be assessed against the environment and will have to be paid by our
children.

There are
two arguments for developing renewable energy.
The first, of course, is that eventually we will run out of a
nonrenewable resource; in a matter of decades at most. Economic optimists say that the market will
take care of that but that market is “free” by definition only. We need to consider that a new energy economy
will take decades to create. It will
require considerable human and capital resources. There is no time to waste.

The
second argument is the social, political and economic impact of climate change. Not changing the current world energy policy
will result in at least two and more likely four or more degrees rise in global
temperature. That is enough to more than
change the dynamics of the global weather system for hundreds of years to
come. One to two meter sea level rises
are certain. So are shifting patterns of
droughts and floods, incidents of violent storms and steady migration northward
of growing seasons and habitats (agriculture is heavily impacted by climate
change). Conflicts will occur requiring
military intervention.

We have a
choice to make. Do we, like Dr. Faustus,
sell our soul for a few decades of power?
Do we wait until the crisis is extreme enough to mobilize emergency measures? Do we accept the tragic cost and injustice to
the less advantaged peoples of the world?
Or do we choose to create a sustainable future for the generations to
come?

By 2030
there could be nine billion people struggling to live on this planet. A third of us now live in the rapidly growing
economies of China and India, and many other countries are on the same path of
progress. A number of powerful
international agencies have the objective of insuring that all the people of
the Earth are lifted out of poverty to become players in the world
economy. This progress will require every
measure of oil, gas, coal and every other resource that can be exploited. We really need to think deeply into the
implications of population growth and development on the future of the planet.

We have
the capacity to change. We have at least
as much collective genius as we had to create the first two energy
economies. We have more knowledge, more education,
vastly improved communications and information technology and a wealth of human
experience. To suggest that we should
not choose to change is, well, absurd.

A Proposal

We’ve all
heard of Margaret Mead’s famous statement that not only can a small group of
people change the world, that, indeed, only a small group can. There is ample evidence in every area of life
that this rule is true. By implication,
the place to produce change is in one’s local community. One good reason is that a community is about
as big a “problem” as the human mind can embrace. While never easy, it is certainly clear that
we have better prospects to organize for change where there are people we know,
who share a sense of place and a common identity.Transition
Centre advocates the Transition Towns model as a promising grassroots community
development program focused on creating and implementing a local plan for a
sustainable future. Founded in 2006,
there are already nearly 450 Transition Town initiatives around the world. Thousands of people in many communities have
shared their experience to help this movement grow. The results can be found in The Transition Companion, a second-generation
guidebook for forming local, grassroots initiatives (click for review). The objective of the TT model
is to create an Energy Descent Action Plan (click for review) for the community, a plan to achieve actual and realistic local
energy independence over the course of 20 years. Here is where you start (click here).

A
grassroots community initiative does not require the consent of state
legislatures, the Federal government, or the support of multinational
agencies. It doesn’t even initially
require the approval of a local council.
It does not take a lot of money to start. It just takes a few people who have a common
commitment. It is a private initiative
to serve the needs of the community. There is
much that can be done at the local level.
Local communities are capable of transforming themselves by creating
strong, sustainable, local economies.
Local foods are a still largely untapped market. Local manufacturing and business need to be
reestablished. There is a substantial
literature and web presence to draw on for projects and programs.

Every
community has interest groups, local governance, educational institutions, associations,
religious organizations, and others that are committed to its future wellbeing. These are the assets we have to use if we can
organize them to pursue a common objective.
It is hard work, it takes time, it will have its share of upsets and
personality conflicts. But our history
is one of community achievement.

Our
challenge is clear. Our economy is based
on energy. How we live and what we
consume defines our use of energy. The
cost and availability of energy defines the scope of our lifestyle. Our economy is challenged. Our energy future is uncertain. Environment and climate are high on the list
of public concerns. By employing the
principles of our democratic society, especially in terms of how we work to
meet our collective needs, we have an unsurpassed model of defining what our
future and the future of our children and grandchildren might be. There are challenges, but challenges are
opportunities.

We revere
our pioneer and immigrant ancestors for the challenges they overcame, the
sacrifices they made and the struggles they endured to create a better life for
us all. There is that same element of
adventure in the challenges that lie before us, and there is a profound sense
of satisfaction in knowing that we are doing something important and doing it
together as a community.